ACRN Journal of Finance and Risk Perspectives
(ISSN 2305-7394)


Christopher R. Myers 1
1 Doctoral Candidate, Manchester Business School, University of Manchester

Abstract: The study assesses the relationship between enterprise risk management (ERM) and risk tolerance to determine if there is evidence of operational efficiencies as a result of implied well structured, optimal risk tolerances. Current ERM research suggests that firms which adopt ERM obtain a holistic perspective of their risk profile, and make better decisions with resource allocation and risk strategy in contrast to companies that have not fully adopted ERM. However, these studies generally lack a discussion of how risk tolerances and ERM are related, and that this relationship can determine the effectiveness of ERM. Using a sample of 110 US publicly listed insurance companies, a two stage step-wise regression process is used to provide evidence to support this idea. We show that one reason for ERM user successes is that their ERM frameworks facilitate an alignment of risk tolerances to risk capacity, a subtle, yet essential aspect of the ERM process. When this alignment is established we see stronger operational efficiencies across ERM-user firms with well structured risk tolerances relative to those firms where such structures are in question.


Elisabetta Castellan 1, Guido Max Mantovani 2
1 Ca’ Foscari University
2 H.E.R.M.E.S. Universities & Ca’ Foscari University

Abstract: Current literature doISes not agree on the impact that Basel regulation is having onto the banking system, small and medium size enterprises (SMEs) and the single country economies. Moreover, recent crises cast some doubts on the efficacy of the regulation itself. With this paper, we investigate this issue by comparing the credit allocation capabilities of different countries. In particular, we compare two Anglo-Saxon Countries (the USA and the UK) with a group of eight European Countries where Basel rules are fully implemented. We find that, without the competition of well-developed risk capital markets, Basel regulation struggles to be effective.

Keywords: SMEs financing, Basel regulation, Ratings, Certainty Equivalent. JEL classification: G32, M10, G28


Ewa Wanda Maruszewska 1, Marzena Strojek-Filus 2
1 University of Economics in Katowice, Department of International Accounting
2 University of Economics in Katowice, Department of Accounting

Abstract: Because goodwill appears as a consequence of consolidation process as well as business combinations, it is a regular item in statements of financial position prepared by modern entities. Polish publicly traded companies are obliged to follow international or Polish accounting standards that both include regulations referring to goodwill. Although Polish standard-setters are aiming at accounting harmonization, Polish legislature is not fully converged with international standards. Moreover, international standards are not precise enough to oblige accounting professionals to act in a certain way when measuring goodwill. Freedom of action arising from ambiguity of choices should be used in a way to achieve relevance and faithful representation of financial information. Through the analysis of European Union and Polish accounting regulations authors suggest that legal foundations of goodwill disclosure and measurement should be more detailed. A survey conducted among Polish publicly traded companies acknowledges that goodwill is a complicated item in financial reports and that is why accounting professionals should pay more attention to disclosed information in order to achieve fundamental qualitative characteristics. Authors’ contribution into the modern accounting literature is twofold. First, authors call for a greater attention to significance of information about goodwill, especially on economic substance of goodwill disclosed in financial reports, verifiability, understandability, and a risk regarding changes in estimates included in goodwill valuation process. Second, the importance of right teaching methods is pointed out in order to stress that arithmetical calculations following legal regulations of goodwill are not satisfactory for faithful representation of economic substance of goodwill.

Keywords: goodwill, business combinations’ accounting, IFRS 3, Polish accounting


Louai Ghazieh 1, Bahram Soltani 2

1 Phd student, University of Paris I Sorbonne
2 Associate Professor and Research Director at the University of Paris I Sorbonne

Abstract: The values of managers occupy a prominent place in the scientific research.The role played by individual values in decision making within the company is less clear. Despite this attention, this study examines the relationship between managers' individual values and the company's performance.Based on a sample of 1202 Frenchmanagers, this study aims to explain the system of managers' individual valueswithin the French company SBF120. A questionnaire was sent to 1,202 senior managerial leaders.
Our results highlight the existence of a positive relationship between the individual preferences of managers for competence, moral and social values and company's performance. This study should have academic and practical contributions particularly for managers seeking to improve the companies’ practices and organizational functioning within capital market economy.

Keywords: Manager, company's performance, individual values, value system, financial crisis.


Louai Ghazieh 1, Bahram Soltani 2
Phd student, University of Paris I Sorbonne
2 Associate Professor and Research Director at the University of Paris I Sorbonne

Abstract: Following the high profile financial scandals of 2007-2008, corporate management hAs been faced with strong pressures resulting from more regulatory requirements, as well as the increasing expectations of various groups of stakeholders. The responsibility acquired a big importance in front of this financial crisis. This responsibility requires more transparency and communication, inside the company with the collaborators and outside of the company with the society, while companies try to improve the degree of control and to authorize managers to realize the objectives of the company. The objective of this paper is to present the concept of the responsibility generally and the various types of manager’s responsibility in private individual within the company, as well as the explanatory theories of this responsibility through the various perspectives such as: economic, political, social and behavioral. This study should have academic and practical contributions particularly for regulators seeking to improve the companies’ practices and organizational functioning within capital market economy.

Keywords: Manager, accountability, corporate performance, financial crisis, behavior.


Majid Mazloum Bilandi 1, Janusz Kudła 2
Ph.D. Candidate in Economics, University of Warsaw, Faculty of Economic Sciences
2 Prof. dr hab. University of Warsaw, Faculty of Economic Sciences

Abstract: The paper aims to conduct a comprehensive research in sphere of risk measurement. This study would like to determine the forecasting precision of different risk estimation tools through implication of popular methods e.g. parametric and non-parametric methods in this field and more fresh and complicated methods e.g. semi-parametric methods and finally confirming the results with exploiting backtesting methods. Design/methodology/approach – The paper opted for a quantitative approach of measuring VaR. Estimating VaR by implying 8 different methods then comparing the obtained results based on backtesting criterion. We put into examination 6 major international stock exchange indices e.g. Canadian TSX, French CAC40, German DAX, Japanese Nikkei, UK FTSE100 and US S&P500 from 03-June-2003 to 31-March-2014 meanwhile we used rolling-window technic for backtesting purpose. The data were obtained from Yahoo! Finance. Findings – The paper empirically determined extend to which, the aforementioned methods are reliable in estimating one-day ahead VaR. we find out that EVT and HS are the two most precise methods albeit at very high confidence levels the EVT produces the most accurate forecasts of extreme losses. Results of this study encouraged financial managers to turn from using traditional methods of risk measurement to more fresh and reliable one such as EVT method of estimating VaR. Originality/value – This paper fulfills need to a comprehensive study of different proposed methods of measuring risk and showed the estimated VaR of them in a readily comparative manner.

Keywords: VaR, HS, GARCH (1, 1), EGARCH, GJR-GARCH, AGARCH, DCC-MGARCH, FHS, EVT, Simulation Technique.


Mobeen Ur Rehman 1, Syed Jawad Hussain Shahzad 2
1 Lecturer, COMSATS Institute of Information Technology, Islamabad, Pakistan
2 Lecturer, COMSATS Institute of Information Technology, Islamabad, Pakistan

Abstract: This study for the first time explores the time frequency relationship between investors’ sentiments and industry specific returns. A sentiment index proxy is constructed using level and lag values of six indicators of investors’ mood swing through Principle Component Analysis. The data on investors’ sentiments and nine major industry’s returns is used from 2001 to 2011. Wavelet Coherency analysis reveal that investors’ sentiments and industry returns are significantly related and are in phase (cyclical). An optimistic view of the investors regarding an industry’s performance results in higher returns and pessimistic view results otherwise. The relationship is significant on 0 8 and 32 64 months scale. Financial and energy crises play major role in the sentiment led industry’s return. These findings are unique and were not possible through the traditional econometric estimates.

Investors’ sentiments, stock returns, wavelet analysis


Supawadee Sukeecheep Moss 1
Accounting School, Business Administration and Information Technology Faculty, Rajamangala University of Technology Suvarnabhumi, THAILAND

Abstract. The significant impact of recent, and often high-profile, corporate accounting scandals, is often attributed to earnings management and factors surrounding cost of equity capital. Understanding the relationship between these factors is important for both the management of corporations and for the confidence of their investors. The main of objective of this paper is to examine the influence of earnings management and corporate governance on the cost of equity capital in listed companies in Thailand and determine their impact, which could be used to initiate strategies to restore investor confidence. Earnings management in this paper is measured from the absolute value of discretionary accruals that are calculated from five different models. Corporate governance variables in this paper include board interlocking, board independence, board size, CEO-Chair duality, audit committee financial expertise, audit opinion, managerial ownership and institutional shareholders. The CAPM and Industry Adjusted Earnings to Price ratio model are used as a proxy for the cost of equity capital in this paper. To test the influence of these factors, a fixed-effect panel data regression model is applied. The results reveal that companies with higher earnings management, higher proportion of managerial ownership, institutional ownership, CEO-Chair duality and which receive modified audit opinions are likely to have higher cost of equity capital. In contrast, the companies that have higher proportion of board independence, audit committee financial expertise and board interlocking are likely to have lower cost of equity capital.

Keywords: board-interlocking, board independence, modified Jones


Valery Shemetov 1
1 Northern Virginia Community College

Abstract: The article suggests a quantitative model describing development of a corporate economic distress when a firm is not burdened with a long-term debt yet. The model introduces new variables related to the crisis dynamics, market trend and volatility, and corporate features. For the economic distress left unattended and for the recovery stage when the firm tries to restore its stability, the probability of default as a function of time and problem parameters is given, and the distance to default and the point of no return for launching a recovery program are estimated. The model helps select the program minimizing the probability of default over a set of available recovery programs. For a steady developing corporation, it is estimated how much money can be withdrawn from the business for dividend payments and other needs without exposing the corporation to an extra risk of default. In the approximation of firms having no long-term debt, the model demonstrates the limits of validity of the Capital Assets Pricing Model. (JEL G30)

Keywords: Corporate Economic Distress; Recovery Program; Probability of Default; Distance to Default; Sustainable Corporate Development; CAPM


Victor Olkhov 1

Abstract: This paper presents new approach to financial modeling and forecasting that is based on economic space notion. Economic space is defined as generalization of risk ratings and allows boost methods and description of financial processes. Risk ratings of economic agents are treated as coordinates of economic agents on economic space. Economic and financial variables of separate economic agents determine macroeconomic and financial variables as functions of time and coordinates on economic space. That permits describe financial relations similar to mathematical physics equations. Financial models can be described on discreet and continuous economic spaces with dimension determined by number of major risks measured simultaneously. To show advantages of economic space usage to financial modeling we present extension of Black-Scholes-Merton equation on n-dimensional economic space; develop macroeconomic models on economic space in a way similar to hydrodynamics and derive financial wave equations.

Keywords: risk ratings, economic space, option pricing, financial wave equations.


Vladimír Mariak 1, Ľudmila Mitková 2
Faculty of Management, Comenius University in Bratislava, Department of Economics and Finance

Abstract: Financial market is the place where a supply of financial products and a demand for financial products are crossing. Financial institutions are standing on the supply side, and potential client on the demand side. The mentioned crossing is seen in a financial portfolio. The client is purchasing a product for some purpose (insurance, mortgage, etc.), the financial institution or a financial advisor/broker should be helpful in the phase of creating a client’s portfolio. By offering the product to client it is necessary to know his/her needs first. In this article we assume that the needs analysis is the inevitable part of a client's portfolio building process. Firstly to reach the concept of long – term sustainability and secondly that this process should be done by taking into account possible gender based differences.

Keywords: Gender, Long – term sustainability, Portfolio Investments, Risk


Zita Drábková 1
1 Ph.D., Department of Finance and Accounting, Faculty of Economics, University of South Bohemia in České Budějovice

Abstract: Accounting remains the main source of information about the company for most users of financial statements. At the same time, the creators and users of financial statements want to get the best quality and quantity of information as far as possible. Although users of financial statements are unable to obtain with absolute certainty statements that are true and fair, they need to know how much they can rely on financial statements. This paper deals with reducing the information asymmetry, especially on the part of users of financial statements. The paper analyses selected models of the detection of manipulated financial statements as a possibility to reduce the risk of accounting fraud and use as part of an internal control system of an entity or as a management tool for corporate governance or internal auditors. A risk analysis was performed on selected models; the Beneish model, the CFEBT model, the Jones Non discretionary Accruals model and selected bankruptcy models to detect accounting frauds in specific case studies of selected accounting unit.

Keywords: financial statements, fraud, fair and true view of accounting, detection of the risk of manipulating financial statements.

The Performance, Volatility, Persistence and Downside Risk Characteristics of Sustainable Investments in Emerging Market
Olaf Weber 1, Wei Rong Ang 2
1 School of Environment, Enterprise and Development, University of Waterloo, Canada
2 Independent Researcher, Malaysia,
Abstract: We analyzed the performance of an emerging market SRI index, the MSCI SRI Emerging Market Index, with regard to its financial performance compared to conventional indexes between June 2011 and December 2014 based on daily returns. Our analysis suggests that the SRI index is ranked higher in terms of mean return than most of the conventional emerging market portfolios. Generally, we found relative stability in the performance and persistence for the SRI index whereby its performance is indifferent from the market benchmark and no persistence can be found. Furthermore, the results suggest that negative shocks have greater impact on the volatility of the index than positive shocks. In general, it can be concluded that the emerging markets SRI index has lower sensitivity to market return during bearish condition.

How make real option dependable and understandable as a strategic decision making tool?

Zahra Shahrokhshahi 1
1 Carlos de Thirth University, Finance Department
Abstract: Real option methodology has gained surge of attention by scholars after its introduction, yet in real world application, in spite of general acceptance of the model, decision makers do not trust the model extensively. Focusing on different criticisms of the model, this paper is a try to make real option model more trustworthy for real world application. At first, the topic of capturing all the concurrent options investigated with assumption of mean reversion stochastic process and dynamic leakage rate for deferment in start a project. Then, in next step, distribution based model introduced to face the issue of option pricing with two sources of risk, market and private risks. The new model treat different risks individually, besides, its result is suitable for strategic decision making process. As a response to the necessity of proper understanding of real option result, its interpretation mentioned ,briefly, by using Pascal triangular. Finally the result of proposed approaches reviewed applying a real world case.
Keywords: Defer option, Private risk, Multiplex model, distribution based model, real option interpretation

Selection of risk identification instruments

Susanne Baumann 1, Iris Erber 1, Magdalena Gattringer 1
1 Controlling, Accounting and Finance at University of Applied Science, Upper Austria

Abstract: The growing volatility in the business environment fosters the importance of risk identification. This step as part of the risk management process builds the basis for every further stage. The prospective risks need to be analysed closely as they reveal potential threats and opportunities. Creativity tools are used here to overcome biases like hindsight or conservativism as these often occur when evaluating past data. However, not one single technique offers the solution but a combination is necessary to identify potential risks. To identify all importantones a diversified group is best suited as they are able to identify more risks than individuals. A combination of internal and external experts is useful for effective risk identification. The techniques used thus need to be customized to the involved persons and business environment to provide a starting point for the decision making. If the importance of risk identification is not seen by companies one of the many negative effects this can have is a weakening of the market position and lagging behind the competitors.
Keywords: Risk Identification, Creativity tools, Brainstorming, SWOT-Analysis, Interview, Delphi-Technique, Bisociation, Synectics

Islamic Banking and Finance as an Ethical Alternative: a Systematic Literature Review

Johanna Pesendorfer 1, Othmar Lehner 2
1 University of Applied Sciences in Upper Austria
2 University of Oxford, Said Business School
Abstract: Despite huge global growth rates and a rapidly increasing importance of Islamic banking and finance, research in this area still needs to be classified as nascent. Recent economic events have led to an increasingly critical attitude towards the conventional banking and finance system, whereas Islamic banking is considered to be an ethical alternative not only in Muslim economies but also progressively in the “western” world. As their business models have their origins in religious and ethical ideals, Islamic banks struggle to observe the foundational Shariah principles while simultaneously meeting applicable guidelines such as Basel III and flexibly adapt to the ever changing customer demands. Due to the increasing importance of Islamic banking and finance, this article aims to analyse and summarise various aspects of current research and sets out to identify both, congruence and inconsistencies between the implied promise of an “ethical” alternative and the actual market.
Keywords: Islamic banking, Islamic finance, Shariah, Ethics, Sustainability

A Case for an Islamic Social Impact Bond

Saadiah Mohamad 1, Othmar Lehner 2, Aly Khorshid 3
1 University of Oxford; Universiti Teknologi MARA-Faculty of Business Management 2 University of Oxford; University of Applied Sciences Upper Austria
3 University of Reading; UTM Universiti Teknologi Malaysia
Abstract: While the premise of Islamic finance is often couched in the principle of maqasid al-shariah and that of risk sharing with claims to social justice and welfare, the impact and contribution to the social sector has been minimal. This paper examines the claim among critics that there is an inherent weakness of the present day Islamic banking and finance industry in terms of its underdeveloped social sector and argues for the need for new models that will enhance a proliferation of shariah compliant financial products for solutions in the social sector. This paper further examines the framework for a socially responsible investment (SRI) sukuk, launched in Malayia in 2014 and the model of SIB (social impact bond) in the social finance space to come up with recommendations for structuring a shariah compliant SIB or social sukuk.
Keywords: socially responsible investment (SRI) sukuk, social impact bond (SIB), shariah compliant, Islamic finance, social finance

Environmental Finance and Impact Investing: Status Quo and Future Research

Christoph Bertl 1
1 University of Applied Sciences Upper Austria
Abstract: Environmental finance (EF) has largely taken root in the financial world. Although the term EF is not commonly used among scholars, in practice though, its components, such as carbon, energy and climate finance, are present in various forms. A proliferation of views, theories and future action alternatives has emerged that could hamper a promotion of the EF field. Consequently, the aim of this paper is to structure, highlight and summarize existing streams, obstacles and future research areas with the assistance of a systematic literature review. Imposed by this review, 117 identified and examined articles have been categorized into three meta-themes: types of EF and markets, impact investing in EF and business models in EF to recap major themes. Based on these findings, the main hurdles and future research avenues are proposed as a research agenda to urge the EF field and stimulate the appetite to develop new analyses, models, tools and regulations in both theory and practice. Future comparative, large-scale quantitative and sector-specific studies should verify the findings in this paper and provide new insights into the EF field. Practitioners might benefit from proper definitive environmental and impact markets with accurate measurement tools and tailored financial products that assort well with personal values of interested parties.
Keywords: Environmental Finance; Environmental Markets; Impact Investing

IFRS 9: The new rules for hedge accounting from the risk management’s perspective

Thomas Bernhardt 1, Daniel Erlinger 1, Lukas Unterrainer 1
1 University of Applied Sciences Steyr

Abstract: Hedge accounting rules of IFRS ensure that earnings and expenses regarding hedging relationships are accounted simultaneously. These rules should avoid an economically not justifiable increase in earnings volatility through hedging relationship. The crucial issue in hedge accounting is the separation between financial instruments that are used for speculation purposes and financial instruments that are used by an entity to hedge a risk exposure. Hedge accounting rules of IAS 39 are often criticized as being too complex and not aligned with entities’ risk management strategies. Therefore, entities are faced by the trade-off between an optimal hedging strategy, which probably does not qualify for hedge accounting, and a sub-optimal hedging strategy, which qualifies for hedge accounting and decrease earnings volatility, but does not fully meet the objective of entity’s risk management. As a consequence of criticism the IASB published in November 2013 the new rules for hedge accounting under IFRS 9. The new rules should eliminate weaknesses of IAS 39 by making hedge accounting rules less complex. Furthermore IFRS 9 should align hedge accounting rules with companies’ risk management strategies.
Keywords: IFRS 9, IAS 39, hedge accounting, hedge effectiveness, risk management, derivative financial instruments

Opportunities and risks of IT solutions for ERM

Peter Mitterbaur 1, Johanna Pesendorfer 2, Elisabeth Schmidinger 3
1, 2, 3 University of Applied Sciences in Upper Austria

Abstract: Compliance with legal regulations as well as the increasing pressure from various stakeholders demand continuously growing standards in company risk management. Rising complexity of businesses due to issues like globalization or the evolving role of the internet forces companies to reconsider their risk management approaches. In order to implement enterprise risk management in a successful and holistic way, IT systems have proven to be essential. However, the increasing reliance on IT systems not only in case of risk management but also for use in daily business also poses a number of risks for companies. This paper analyzes advantages as well as potential threats in connection with the use of IT in companies.
Keywords: Enterprise Risk Management, IT Framework, COSO, GRC, IT Integration, IT Compliance, IT Security, Data security, cloud computing

Relation Between Share Price And Financial Indicators In The Brazilian Stock Market

Jailson Da Conceição Teixeira De Oliveira 1, Fernando Henrique Taques 2
1 Universidade Federal da Paraíba – UFPB and Faculdade Maurício de Nassau/JP
2 Universidade Presbiteriana Mackenzie

Abstract: Given the uncertainty in the financial market, it requires from the decision makers to have a greater care in their estimates. The expansion of the Brazilian capital market has generated the need for an understanding of the factors that determine the formation of the pricing of shares. This study aims to determine, through the panel data methodology during the period 2009 to 2013, the share prices of companies listed on the BM&FBovespa that keep some relations with some financial indicators, including earnings per share, the book value per share and total assets used as a proxy for the company size. The results show that such information is relevant in determining stock prices. The proxy for company size, set based on total assets by sector, showed statistical significance and positive sign, signaling that the size of the company is relevant to the extent that the market reacts asymmetrically between companies considering their size. Sector samples showed the size factor relevant in the sectors of industrial goods, construction and transport. It also notes that the financial statements are good predictors mainly in the sectors of consumer staples, utilities and industrial goods.
Keywords: stock market, pricing, accounting variables, panel data

Impact Investment and Risk Management: Overview and Approach

Joseph Calandro, Jr. 1
1 PwC and the Gabelli Center for Global Security Analysis at Fordham University

Abstract: Managing financial risk has proven difficult over time as evidenced by numerous high profile failures over the recent past including and especially those experienced in the stock market crash of 1987, the financial crisis of 1997-1998 (also known as the “Asian Contagion”) and the 2007-2008 financial crisis (also known as “The Big Short”). Therefore, managing both the financial and social risks inherent in an impact investment, and across a portfolio of impact investments, could be particularly challenging in the absence of a practical framework. This paper profiles a framework for managing Impact Investment Risk as a function of investment risk, social impact risk, and the problem-set common to both. The taxonomy of the framework is illustrated, explained and then applied to a case study. The subject of the case is an actual impact investment that has been profiled as, “The Triple Bottom Line and Investing for Impact: The Case of Afram Plains District of Ghana.” The case analysis leads to a discussion of performance measurement, basic statistical analysis and potential enterprise risk management considerations such as exposure classification and tracking, tail risk analysis, and potential broader uses of impact investment risk information.
Keywords: Social Entrepreneurship, Impact Investment, Risk Management

Evaluation Factors of Money Supply of Bosnia and Hercegovina Banking Sectors

Almir Alihodžić 1
1 Faculty of Economics, University of Zenica

Abstract: The paper discusses the correlation between changes in monetary aggregates to establish the flow of formation of money regarding the currency board in B&H. Therefore, the primary objective of this study is to determine which independent variables in the regression models have an impact on the amount of money supply in a broad sense. The money supply will be the dependent variable in the study, while the following variables are to be independent: money supply in the narrow sense (M1), the growth rate of foreign deposits in the banking sector (GFD), real GDP growth, the growth rate of domestic deposits (GDD), the rate of increase of domestic loans(GDL), the growth rate of foreign loans (GFL), the consumer price index (CPI) and average reserve requirements (ARR).
Keywords: money supply, credit, multiplication, currency board, economic growth

Leaders’ Community and their Managerial Decisions in the Finance and Governance Domains

Louai Ghazieh 1, Nadia Chebana 2
1 University of Paris I Pantheon-Sorbonne, France.
2 University of Oum El Bouaghi, Algeria.

Abstract: The community of leaders occupies a prominent place in the scientific research. The role played by this type of community in decision-making within the company is less clear. There are numerous research studies dedicated to the identification of various types of communities, trying to reveal its borders, as well as explain its existence and functioning. Rare are the researches centred in looking beyond their existence and explaining their impacts. A community of leader is a new concept and little-used. This community is defined as an organization where all members maintain relations and interact mutually for a practice. In our study, we are not only interested in the existence of a leaders’ community, but also the influence that this can have on the community management decisions. These decisions affect investment, as well as financing and corporate governance. The main objective of this paper is to explain the impact of new behavioural factors as mimicry, as well as organizational learning and legitimacy, on the leaders’ decisions.
Keywords: Leader, community, mimicry, corporate governance, behaviour.

Insights into the Social Impact Bond Market: An Analysis of Investors

Alessandro Rizzello, Rosella Carè
University Magna Graecia of Catanzaro, Italy.

Abstract: In the last five years, the public and private sectors have shown considerable interest in Social Impact Bonds (SIBs), a financial innovation that enables the mobilization of private financing for public sector programmes. A SIB involves a contractual agreement for the provision of public services by a private sector consortium, ‘optimal’ risk sharing between the public sector and the private sector, and innovative design and delivery of public services by the private sector. A large number of actors – such as governments, social organizations, impact investment intermediaries, and banks – have contributed to the development of the global impact bond market over the last six years. Recent research efforts have explored the topic of SIBs from different theoretical perspectives. However, empirical studies are still lacking, and their limits, potential and effectiveness need to be explored. Many attempts have been made to map the SIB market. Moving from the widely varying results in both number and execution of SIBs around the world, this work aims to provide an updated analytical map of this promising field of activity worldwide, with a focus on the investors consciously pursuing a blend of economic, social and/or environmental value. Finally, this study identifies the issues investors face and suggests areas for future research in this field. These preliminary results are encouraging and offer several starting points for future works.
Keywords: Social Impact Bond, Impact Investment, Impact Investors, Financial Innovation

European Commission: New regulations concerning environmental and social impact reporting

Katharina Pichler
1, Othmar M Lehner 2
1 University of Applied Sciences Upper Austria
2 University of Oxford

Abstract: The European Commission has released a new directive concerning sustainability reporting that must be implemented in thousands of companies by 2017. Many companies already report on sustainability. Thus, the question emerges whether companies already fulfil the requirements for reasons of legitimacy, signalling and authenticity, regardless of the new directive. A multiple comparative case study of exemplary companies with triangulation through qualitative expert interviews has been conducted. Business reports, newspapers and interviews have been coded deductively and inductively. The exemplary companies already fulfil the majority of the new requirements. The result of the coding is a framework of five categories, namely, motives, legitimacy, integration, signalling and authenticity. It has been identified that motives have changed and sustainability reporting has developed into an instrument for legitimacy. The implementation has become more standardised and distinct signals have gained in significance to attain authenticity.

Is gold a hedge, a safe haven, or a diversifier in Korea?

Wei Rong Ang
1, Olaf Weber 2

1 United States School for Environment, Enterprise and Development,
2 University of Waterloo

Abstract: This paper examines whether gold is a hedge or a diversifier for socially responsible and conventional investment in Korea. To answer this question, daily returns between January 2006 and December 2015 were analyzed. This time span included the implementation of the Korean Green New Deal. The autoregressive distributed lag method was used to analyze the daily returns for socially responsible investment, conventional investment, and gold. The results suggest that gold is a strong diversifier, but a weak hedge, for socially responsible investment and conventional investment in Korea. For the sub-period, including the 2008 financial crisis, no evidence of gold being a safe haven was found. Furthermore, the study found that neither negative nor positive shocks have a significant impact on the volatility of the Dow Jones Socially Responsible Investment Index Korea. However, positive shocks contribute to volatility in the first sub-period between 2006 and 2010, and negative shocks contribute to volatility in the second sub-period between 2001 and end of 2015.
Keywords: Gold, Korea, Socially Responsible Investment, Korea Green New Deal, Hedge, Diversifier

Capital Structure Decisions of Microfinance Institutions and Managerial Behavioral Biases:
A survey and future Directions

Marwa Fersi
1, Mouna Boujelbéne 2
1,2 University of Sfax-Tunisia
Abstract: Capital and Financing structure are considered of a crucial importance for the operational and financial sustainability of microfinance institutions (MFIs). Therefore, each decision making process is of the same importance for these institutions. The purpose of this study is to draw attentions toward the microfinance sector and to take into consideration the human factor and the role that managers play in funding and financing modalities and decision making process in microfinance institutions. In this context, this paper explores the differences between conventional and Islamic MFIs’ capital structure choices on one hand. And, reviews the insights provided by the literature examining capital structure decisions and managerial behavioral biases on the other hand. The theoretical and comparative analysis revealed the substantial differences between capital structure of both Conventional and Islamic MFIs. Furthermore, the empirical literature points that managers behavioral biases play an important role in explaining the capital structure choices. Microfinance institutions still has not been subject of behavioral finance studies. Thus, the discussion emphasizes the theoretical and empirical limitations on this field. In addition, the discussion stresses the importance of studying the behavioral traits of MFIs’ managers and their role in explaining capital structure choices.
Keywords: Capital Structure of Conventional MFIs, Capital Structure of Islamic MFIs, Behavioral Biases, Decision Making.

Ireland’s Social Finance Landscape

Sharon O’Leary
1, Attracta Brennan 2
1 Waterford Institute of Technology
2 National University of Ireland

Abstract: The purpose of this study was to research developments in Social Finance in Ireland in order to answer the following question; “What is the social impact of the work being carried out by social ventures and how is it being measured in order to determine the difference being made in people’s lives?” The telephone interview approach, using a semi-structured format was chosen as the research methodology for the collection of data. Representatives from six social ventures were interviewed to; (i) discuss the social impact made by their organisations, (ii) discover whether or not they quantified the social impact being made (and if so, how) and (iii) identify the financial structures that they had adopted. The study concluded with the result that of the six social ventures interviewed, five welcomed an increased use of social impact measurement, as they believed this would attract more funding and ultimately lead to more financially viable social ventures. All six social ventures emphasised the need for government policies in order to support and direct future advancements of social ventures.
Keywords : Social finance, social banks, social ventures, social impact, financial structures, measurement of social impact

Artificial Intelligence for Credit Risk Assessment: Artificial Neural Network and Support Vector Machines

Sihem Khemakhem1, Younes Boujelbene2
1 University of Sfax, Faculty of Economics and Management of Sfax
2 University of Sfax, Faculty of Economics and Management of Sfax

Abstract: This work tries to determine the probability of default as a tool to measure credit risk in a Tunisian commercial bank. A scoring model was built according to the traditional technique of logistic regression (LR), and artificial intelligence techniques i.e. artificial neural networks (ANN) and support vector machines (SVM). Then a comparison was made between these models using performance metrics such as the confusion matrix and the area under the ROC curve (AUC) in order to identify the most efficient model. Our results show that the Radial Basis Function kernel SVM was the most performing method in terms of accuracy, sensitivity and specificity with the least error rates. Thus, in the Tunisia context, this model is worth implementing in banking institutions in order to improve their credit risk management measures to monitor and control credit.
Keywords: Credit risk; Support Vector Machines; Artificial Neural Network; Logistic Regression; Performance metrics

Exploring Environmental Disclosure in Banks. Evidence from the Euro Area

Rosella Carè
Department of Legal, Historical, Economic and Social Sciences University Magna Graecia of Catanzaro, Italy

Abstract: Environmental issues are growing in importance over the years among scholars and practitioners. In particular, environmental considerations are becoming an important facet both in the sustainability engagement and communication process of the banks. Several key changes are occurring in the regulation and supervision of banking (and financial) systems and banks have come to realize that banking operations, in particular lending, affect and are affected by environment issues.
This work explore and compare the environmental disclosure of Global Systemically Important Banks (G-SIBs) headquartered in the Euro by analyzing environmental risk assessment and monitoring issue, through a multiple case study approach. The contribution of the work is twofold: on one hand, the research provides a better knowledge of the relationship between credit risk management process and environmental disclosure, and on the other hand it provides some thoughtful insights, give directions and encouragement for future research.
Keywords: Environmental Disclosure; Environmental Credit Risk Management; Case Studie

Quantitative Description of Financial Transactions and Risks

Victor Olkhov
TVEL, Russia

Abstract: This paper presents a quantitative model of financial transactions between economic agents on economic space. Risk ratings of economic agents play role of their coordinates. Aggregate amounts of agent’s financial variables at point x define macro financial variables as functions of time and coordinates. Financial transactions between agents define evolution of agent’s financial variables. Aggregate amounts of financial transactions between agents at points x and y define macro financial transactions as functions of x and y. Macro transactions determine evolution of macro financial variables. To describe dynamics and interactions of macro transactions we derive hydrodynamic-like equations. Description of macro transactions permits model evolution of macro financial variables and hence develop dynamics and forecasts of macro finance. As example for simple model interactions between macro transactions we derive hydrodynamic-like equations and obtain wave equations for their perturbations. Waves of macro transactions induce waves of macro financial variables on economic space. Diversities of financial waves of macro transactions and macro financial variables on economic space in simple models uncover internal complexity of macro financial processes. Any developments of financial models and forecast should take into account financial wave processes and their influences.
Keywords: Macro Finance, Risk Ratings, Economic Space, Wave Equations

Pricing Implications of Assessing Risk of Relative Wealth Outcomes

Mohamed Ihab Kira
Department of Financial Management and Accounting Arab Academy for Science, Technology and Maritime Transport (Dokki Branch)

Abstract: When relative wealth is the variable used by agents to assess the risk of their financial future perfect coherence in the pricing of various types of financial assets ensues. The use of relative wealth instead of absolute wealth to analyze risk should not be construed as an assumption that agents do not care about absolute wealth. Relative wealth is a perfect substitute for absolute wealth in the case of certainty and on a state-of-nature by state-of-nature basis; however, the use of relative wealth to assess risk over the spectrum of states-of-nature reflects a different outlook about risk. The resulting pricing kernel and asset pricing model are reasonably robust to changes in utility functions and returns’ distributions. The excess return of an asset depends on the covariance of its return with the return on the market portfolio and on all their higher co-moments as well. The simple gross risk-free return equals the harmonic mean of the probability distribution of simple gross market returns; an implication that does not bode well for financial markets in the current prolonged environment of low interest rates. It is straightforward to show that options on basic securities are priced using the same model.
Keywords: asset pricing, relative wealth, risk-free rate, equilibrium, options

Financing Climate Justice through Climate Change Bonds

Julia M. Puaschunder
The New School, Department of Economics, Schwartz Center for Economic Policy Analysis

Abstract: Climate control needs have reached momentum. While scientists call for stabilizing climate and regulators structure climate change mitigation and adaptation efforts around the globe, economists are concerned with finding proper and fair financing mechanisms. In an overlapping-generations framework, Sachs (2014) solves the climate change predicament that seems to pit today’s against future generations. Sachs (2014) proposes that the current generation mitigates climate change financed through bonds to remain financially as well off as without mitigation while improving environmental well-being of future generations through ensured climate stability. This intergenerational tax-and-transfer policy turns climate change mitigation into a Pareto improving strategy. Sachs’ (2014) discrete model is integrated in contemporary growth and resource theories. The following article analyzes how climate bonds can be phased in, in a model for a socially optimal solution and a laissez-faire economy. Optimal trajectories are derived partially analytically (e.g. by using the Pontryagin maximum principle to define the optimal equilibrium), partially data driven (e.g., by the use of modern big market data) and partially by using novel cutting-edge methods – e.g., nonlinear model predictive control (NMPC), which solves complex dynamic optimization problems with different nonlinearities for infinite and finite decision horizons. NMPC will be programmed with terminal condition in order to determine appropriate numeric solutions converging to some optimal equilibria. The analysis tests if the climate change debt adjusted growth model stays within the bounds of a sustainable fiscal policy by employing NMPC, which solves complex dynamic systems with different nonlinearities.
Keywords: Intertemporal decisions, Climate bonds, Climate change mitigation, Economic growth, Intergenerational burden sharing, NMPC, Nonlinear model predictive control, Social discounting alternatives, Truncated finite time horizons

The Austrian way: Sozialpartnerschaft as means to curb the falling rate of profit

Julia M. Puaschunder*
The New School, Department of Economics, Schwartz Center for Economic Policy Analysis

Abstract: Economic crises are inherent in all market systems.   Economic historians vividly outline overaccumulation and overheating leading to a squeeze of profits as underlying to great booms, recessions and depressions by the historical examples of Italy, France, Germany and Japan. Overaccumulation is based on the capital account being run down due to a demand for labor, which leads to rising wages and capital flight and ultimately to unprofitable economies.  Tightening labor markets during long boom phases lead eventually to class conflict, which is the starting point of the profit squeeze and eventually busts and recessions and depressions. This paper aims at adding to the existing literature the case of describing the Austrian Sozialpartnerschaft. This stakeholder engagement means practiced in Austria is shown to avert social imbalances leading to economically inefficient worker uprising, protests and strikes. The unique Austrian model of the voluntary Sozialpartnerschaft is captured to implicitly curb the falling rate of profit phenomenon. Rather than partially illegal and counterproductive, risky strike movements, the Sozialpartnerschaft forms an institutionalized relationship between the government, political parties and certain interest groups in the field of labor, social, and economic policy. While the influence of the Sozialpartnerschaft may be decreasing in the eye of the European Union integration and in times of globalization, other countries with fairly less developed stakeholder engagement approaches may learn from the positive example of the Austrian way to gracefully social partner in reaching common economic, industrial and societal endeavors together.
Keywords: booms, busts, falling rate of profit, long depression, long downturn, overaccumulation, overheating, Sozialpartnerschaft, strikes, Wirtschaftswunder, worker uprising

Financing Social Enterprise in the very long run

Jeremy Thornton1, David King2

1 Samford University
2 Indiana University-Purdue University Indianapolis

Abstract: Social enterprises share a common struggle to finance output that have public good characteristics. Public goods are notoriously difficult for private firms to produce, because of the incentive for their constituents to defect, or free-ride, on the contributions of others. Due of their historical success, this paper examines long-lived religions institutions for strategies to mitigate this collective action problem. We empirically examine the Southern Baptist Convention, which records its efforts to finance international mission activities since 1935. We test a variation of the club good model, which emphasizes imposing costs on members to separate out high intensity adherents. Consistent with the model, we find that contributions to international missions increase when the cost of affiliation increases. We do not find that the specific mechanism for collection within the Southern Baptist matters. We conclude that the club model of organization, where high membership costs are deliberately applied, offers valuable – and counterintuitive – lessons for social enterprises more broadly.
Keywords: Social Entrepreneurship, Finance, Religion, Club Model

Sustainable Lending for Housing Projects: Is Affordable Housing a Myth for Depressed Russion Monotowns?

Leonid A. Shafirov
Southern Federal University, Russia

Abstract: The research presents the author’s attempt to provide a link between the idea of sustainable consumer credit practice and increase in housing affordability, as one of the key elements for the local socio-economic development participatory programs for depressed territories in Russia. Lack of applied studies exists on retail product and service development aimed at harmonization of interests among all the parties involved in consumer lending system at the local level, in Russian developmental context. Meanwhile, housing affordability issue is one of increasing importance for Russian small towns and settlements, also relatively poor highlighted in existing research literature in terms of proposed measures to improve the local households’ living conditions. This research gap is addressed in the paper relying on an integrative framework, blending the elements of the project management theory, pragmatic institutional economics, and reasoned action approach. Conceptual model is proposed to illustrate the process of institutionalization of sustainable lending and borrowing principles within the local communities, which implies prevention of wasteful-spending credit practices and transformation of consumer loan products into the financial source of development. The household survey, accompanied by the interviews with the community leaders in small depressed Russian monotown, have supported the relevance of sustainable credit products development to address local households’ problems related to housing construction and renovation. The research findings have shown that Russian depressed mono-industrial towns are viewed as the testing areas for such pilot projects to be implement with the local authority’s genuine participation.
Keywords: Sustainable credit, local economic development policy, affordable housing, institutionalisation of household housing projects

Business model and firm’s financial performance: evidence from the Canadian mining sector

Jean-Claude Macena1, Ahmed Marhfor2, Suzanne Durand3

1 Uqat-Uqam Chair in Mining Entrepreneurship, Department of Administrative Studies, University of Quebec in Abitibi-Témiscamingue,
2,3 Department of Administrative Studies, University of Quebec in Abitibi-Témiscamingue

Abstract: In this paper, we investigate the impact of business model design on the performance of Canadian mining companies. We propose a comprehensive typology of business models and use a variety of financial performance measures to test whether some business models do perform better than others. The findings indicate that all business models generate lower returns in comparison to a well diversified market portfolio. In addition, we have only weak evidence suggesting that some models (Productors and Streaming/Royalties) do have better financial performance than others. Overall, our results show that Canadian mining companies need to reevaluate the elements of their current business models.
Keywords: Business model, financial performance, economic logic, value creation, value capture, conditional performance

Theoretical grounding for Sustainability Reporting: A Comparison between Indian and European Banks

Taral Pathak1 and Ruchi Tewari2
1 Assistant Professor, Ahmedabad University, Ahmedabad
2 Associate Professor, MICA, Ahmedabad

Abstract: Sustainable development (SD) is gaining acceptance leading organizations to engage in non-economic activities, connect with a larger stakeholder beneficiary group consequently contributing to the over-all development. Banking industry, stereotypically known to hold a myopic focus on economic returns has evolved practices like impact investing, where both the financial and non-financial contribution is assessed and performance is disclosed in annual reports (AR) and/or sustainability reports (SR). These reports provide rich information – qualitative and quantitative, of the non-financial activities, present the firms focus on SD and cater to the conflicting demands of stakeholders. This study analyses the sustainability reporting of the top 60 banks – 20 Indian, European and International banks to investigate the focus of their non-economic disclosure and analyse them through the theoretical lens of accounting disclosure theories – Legitimacy, Institutional, resource-dependency and stakeholder theory (Chen and Roberts, 2010) .
Content Analysis of AR’s and SR’s was done with an initial list (119 words) culled out of literature (academic articles and practitioners reports) and pilot tested on 6 reports; words which did not have a match were dropped and a final list of 30 words was used for analysis. Results indicate that banks focus upon areas which cater to the immediate and elementary needs of the business eco-system like Energy; agriculture, wind and water. All these have a definite social consequence. Results find support in the resource-dependency and legitimacy theories. Findings provides impetus and grounding to recent non-financial activities like positive impact financing, social responsibilities handled by hard-core financial institutions like banks.
Keywords: Sustainability Reporting; Theories of non-financial disclosure; Banks, Positive Impact Finance.

Energy Prices and Emerging Market Investor Sentiments

Mobeen Ur Rehman1, Ameena Arshad2
1 Szabist Islamabad, Pakistan
2 COMSATS Islamabad, Pakistan

Abstract: Energy prices are known to have significant impact on equity returns, however its impact on investor sentiments is a new concept. This paper investigates the relationship between investor sentiments and energy price in an emerging market. Current literature deals with the impact of investor sentiments on energy prices however we have tried to investigate the reverse of it. This is because uncertainty in energy prices has major influence on investor confidence which affects their investment decisions in energy sector. Generalized autoregressive conditional heteroscedasticity (GARCH) with its exponential form (E-GARCH) is used to investigate the impact of energy prices on investor sentiments. A sharp increase in investor sentiment index is observed in the first and third quarter of 2006 and 2009 respectively that might be attributed to an increase in economic growth. Results of the study show that energy prices have noticeable effect on investor sentiments in Pakistani equity market. This finding highlights the fact that even in an emerging market like Pakistan with least market efficiency, investors are sensitive to the global energy prices.
: Investor sentiments, Energy prices, GARCH/EGARCH models.

Financial distress and economic cycle in a dual banking system: Evidence from Malaysia

Mobeen Ur Rehman1, Ameena Arshad2
1 Szabist Islamabad, Pakistan
2 COMSATS Islamabad, Pakistan

Abstract: Energy prices are known to have significant impact on equity returns, however its impact on investor sentiments is a new concept. This paper investigates the relationship between investor sentiments and energy price in an emerging market. Current literature deals with the impact of investor sentiments on energy prices however we have tried to investigate the reverse of it. This is because uncertainty in energy prices has major influence on investor confidence which affects their investment decisions in energy sector. Generalized autoregressive conditional heteroscedasticity (GARCH) with its exponential form (E-GARCH) is used to investigate the impact of energy prices on investor sentiments. A sharp increase in investor sentiment index is observed in the first and third quarter of 2006 and 2009 respectively that might be attributed to an increase in economic growth. Results of the study show that energy prices have noticeable effect on investor sentiments in Pakistani equity market. This finding highlights the fact that even in an emerging market like Pakistan with least market efficiency, investors are sensitive to the global energy prices.
: Investor sentiments, Energy prices, GARCH/EGARCH models.

Closing the Knowledge Gap in Corporate Entrepreneurship through Staged Commitment

Steven C. Michael
Department of Business Administration, University of Illinois

Abstract: Corporate entrepreneurship requires senior executives to evaluate proposals for investment and projects from corporate entrepreneurs. Properties of technology make this evaluation difficult, creating a knowledge gap. Whether through opportunism, overconfidence, or opportunism, corporate entrepreneurs are likely to induce overinvestment in projects, perhaps at the expense of corporate goals. In this paper we analyze this problem using the tools of agency theory, and identify a solution, staged commitment, used and useful in many areas of business.
Keywords: agency theory, technical management, new product development, corporate strategy, corporate entrepreneurship.

Estimation of a Firm’s Optimal Scale of Operations and Size-Related Analyses

Mohamed Ihab Kira
Department of Financial Management and Accounting Arab Academy for Science, Technology and Maritime Transport (Dokki Branch)

Abstract: The paper proposes a framework that can be utilized for deciding upon the optimal scale of operations for a firm. The basic premise of the paper is that a firm that operates in a stable economic environment and a stable mode of business operations experiences a varying elasticity of scale that, after some scale level, becomes less than one and continues to decline with further increases in scale. A firm operating in such a stable system can search for its optimal scale of operations. The paper's premise does not refute the possibility that a firm can experience a shift from a lower elasticity of scale to a higher one; but this shift is not part of the mechanics of a stable system. Rather, it is due to some shock to the economic environment and/or the firm's mode of operations. Firms that operate under the assumption that they face a constant elasticity of scale, when in fact the elasticity varies, expose themselves to detrimental consequences. The model is in congruence with the Tobin's q criteria and can shed some light on why average q is a poor estimate for marginal q. The model sheds some light on the small-firm effect and on a major difference between internal and external growth.

Keywords: optimal scale, elasticity of scale, Tobin's q, small-firm effect, internal growth, external growth

Estimation of a Firm’s Optimal Scale of Operations and Size-Related Analyses

Mohamed Ihab Kira
Department of Financial Management and Accounting Arab Academy for Science, Technology and Maritime Transport (Dokki Branch)

Abstract: The paper proposes a framework that can be utilized for deciding upon the optimal scale of operations for a firm. The basic premise of the paper is that a firm that operates in a stable economic environment and a stable mode of business operations experiences a varying elasticity of scale that, after some scale level, becomes less than one and continues to decline with further increases in scale. A firm operating in such a stable system can search for its optimal scale of operations. The paper's premise does not refute the possibility that a firm can experience a shift from a lower elasticity of scale to a higher one; but this shift is not part of the mechanics of a stable system. Rather, it is due to some shock to the economic environment and/or the firm's mode of operations. Firms that operate under the assumption that they face a constant elasticity of scale, when in fact the elasticity varies, expose themselves to detrimental consequences. The model is in congruence with the Tobin's q criteria and can shed some light on why average q is a poor estimate for marginal q. The model sheds some light on the small-firm effect and on a major difference between internal and external growth.

Keywords: optimal scale, elasticity of scale, Tobin's q, small-firm effect, internal growth, external growth

Managing Impact Portfolios: A Conceptual View of Scale

Sean Geobey1, Jennifer Callahan2
1,2 University of Waterloo
Problem/ Relevance - As impact investing continues to grow, it will see economies of scale and the management of larger pools of capital in portfolios. This makes it possible to fund a wider variety of social and environmental initiatives, but also means that managing the challenges particular to impact investing become increasingly important.
Research Objective/Questions - What happens after impact measurement? What challenges remain in the analysis of cost, risk, and joint impact-financial net returns that will be unique to impact investment portfolios?
Methodology - Our conceptual view of portfolio management for impact portfolios focuses primarily on two difficulties at scale – subjective judgment and investor value heterogeneity.
Major Findings - New tools capable of addressing value heterogeneity and subjectivity in decision-making are necessary to capture vital cost savings at scale and avoid limits on the impact that can be pursued. Regarding potential solutions, there is strategic opportunity in utilizing transparency, dialogic accounting, and democratic values in portfolio management.
Implications - Existing tools could be adapted to the space to foster greater preference aggregation. To enable both market building and robust research, there is a need for additional transparency about current impact investment portfolio allocations and the decision-making processes that are used to set these allocations.
Keywords: optimal scale, elasticity of scale, Tobin's q, small-firm effect, internal growth, external growth

The Future of Monetary Reform and the Real Economy: A Problem of Trade Versus Interest

Masudul Alam Choudhury1, Muhammad Nazmul Hoque2
1 Trisakti University Jakarta, University of Malaya Kuala Lumpur
2 University of Malaya Kuala Lumpur
Problem/Relevance - The paper presents a scientific model of interrelationship between money, finance, and real economy by way of banks, such as Islamic banks, mobilizing the bank-savings into productive spending with moral and ethical values. Such moral and ethical values are embedded in the monetary and financing relations to give the model of monetary reform necessary for an unstable financial economy.. The way to realize this goal is to refer to the Islamic epistemic foundation of unity of relations between the good things of life, while avoiding the un-recommended ones. Such good things are specified in this paper as money, spending, real economy resource mobilization along with their inner variables. All of these unitary relations are made possible by phasing out interest rate and thereby causing monetary resource to interrelate with real resources.
Research Objective/Questions - The paper establishes the epistemic foundation of Islamic banks, well known these days to be productive and ethically performing financial institutions. This epistemic perspective takes the form of lowering the rate of interest; and thereby causing resource mobilization by complementing positively the monetary and financial resources with the real economy. Such an inter-causal relationship is shown to realize the objective criterion of wellbeing while also heightening the productive picture of the socio-economic system, which is the Islamic social economy in the absence of interest rate.
Methodology - The methodology of the study is based on the pertinent Islamic worldview of unity of knowledge between the good things of life that are embedded in the dynamics of a learning inter-causal relationship. This methodological approach explains the imminent complementary nature of relationship between money, finance, and real economy of exchange in the ethically good and productive things of life while avoiding the unwanted ones.
Major Findings - This paper is a rare one in the area of money, finance, and real economy inter-causal relations from the Islamic perspective of absence of interest. The paper thus becomes an analytical study for Islamic banks, central bank, and public and private sectors to formulate their thought and models along such imminent epistemic directions.
Implications - The paper is of great relevance in the area of quantitative policy-theoretic study for that important part of the socio-economic system, which today is being financed by Islamic moral and productive instrume

Impact Investing: Measuring Household Results in Rural West Africa

Edward T. Jackson1, Karim Harji2
1 Carleton University
2 University of Oxford

Understanding how rural households in West Africa can more effectively reduce their conditions of poverty and increase their economic and social well-being has gained new importance and urgency as the region strives to address extremist violence and climate change, among other challenges. Impact investing – an intentional approach to allocating capital to deliver a blended financial and social return – seeks to convert economic gains into social outcomes over time, for individuals and their communities, within a complex set of economic, social and cultural systems. In practice, however, there has been relatively less attention paid by the impact investing field to household-level outcomes compared with enterprise-level or fund-level outputs. Designating the household as a prime unit of analysis for evaluating the results of impact investments encourages a more robust approach to evaluating impact. This approach enables the assessment of the results of incremental income from jobs and self-employment on indicators of the well-being of the household and its members. It also places the focus on the critical microlevel processes of households managing risk, creating opportunity, making decisions and allocating resources, all of which are influenced by power and gender relations. This approach also allows for a more holistic understanding how social impact is created and valued, while balancing the goals of accountability and learning. There is an opportunity to align these techniques and tools with common standards and indicators, adopt lean data practices, apply a gender lens, develop and test household scorecards, and creatively integrate a mixed methods approach.
Keywords: Household, Risk, Decision-Making, Gender, Impact Investing, Evaluation, Impact Measurement

Interest Rates and Investors Behaviour: Cointegration and Granger Causality

Mohammad Sami Ali
The Department of Banking and Financial Sciences, Zarqua University, Jordan
Research Problem: The review of literature revealed that though the economy of Jordan fluctuated considerably, there is no research evaluated the impact of the volatility in the rates of interest in the perception of Jordanian investors. Research Objectives: Therefore, the study aimed at exploring the causal correlation between the weighted average time deposit interest rates and the saving deposit interest rates along with the liquidity of Amman stock exchange as main proxies for investors’ behaviour.
Research Methodology: To achieve the aim of this research, the study employed empirical techniques like the ADF, Johansen co-integration test, VAR model and the short-run granger causality test to analyze a time series data covering the period Q1/2000-Q4/2016. Findings: Consequently, the study found that the tested variables became stationary only after converting them into the first difference. However, results from the Johansen test proved that the examined variables are not integrated on the long-run. Similarly, findings from the VAR analysis and the granger causality tests revealed that there is no short-run causality running from the volatility in interest rates towards the market’s liquidity as captured by the value traded and the turnover ratio.
Implications: Moreover, the study concludes that investors of Jordan can be classified as risk averse investors, since they are preferring to deposit their funds into the banks, though the level of interest rates is low. Eventually, the study recommends investors to rely on these rates to improve the quality of their investment decisions.
Keywords: Weighted Average Time Deposit Interest Rates; Weighted Average Saving Interest Rates; Amman Stock Exchange Liquidity; Turnover Ratio, Traded Value.

Jale Sözer Oran, Ömer Faruk Tan, Sezer Külah

Marmara University, Istanbul, Turkey

Problem/ Relevance: Calendar anomalies have been studied by a number of articles especially in the last two decades, which is considered against the efficient market hypothesis.
Mostly, anomaly researchers have examined the holiday effect, the day of the week effect, the month effect, the year effect, and the holy days effect in order to investigate the particular time period for abnormal returns. The holiday effect is regarded as a well-organized calendar effect in stock markets and it has significant theoretical background

Research Objective/ Questions:
This study attempts to analyze the effect of the Religious Holiday - the feast of Ramadan and the feast of Sacrifice- on sectoral indices returns at the Borsa Istanbul for the time period between 1997-2015. BIST100, BIST30 and 23 sectoral indices are considered for this study. Their return performances’ at time Day-3 (three days before religious holidays), Day-2 (two days before religious holidays), Day-1 (one day before religious holidays), Day+1 (one day after religious holidays), Day+2 (two days after religious holidays) and Day+3 (three days after religious holidays) are studied.
Methodology: In order to compare the results of both regression analysis and non-parametric tests, they were analyzed together. Mann-Whitney, Kruskal-Wallis, and Wilcoxon Rank tests were used for non-parametric tests.
Major Findings: The analysis shows that average return of Day-2 is better than the other days. 12 sectoral indices display positively statistically significant results on that day. Returns of BIST Real Estate, BIST Services, BIST Transportation were positive and statistically significant at the 10% level; returns for BIST Electricity, BIST Industrial, BIST Inv. Trust, BIST Tourism, BIST Wood, Paper and Print were positive and statistically significant at the 5% level; BIST Food & Beverage, BIST Non-Material Products, BIST Leasing and BIST Textiles were positive and statistically significant at the 1% level.
Implications: This study indicated that there is religious holiday effect in the BIST for some indices, which have highest average returns at Day-2. This study aimed to contribute to the efforts of academicians who study this field, and investors for their investment strategies, which may now be developed by analyzing the volatility of these indices at those time periods.
Keywords: Behavioral finance, Islamic finance, Religious Holidays, Borsa Istanbul

Economic and Financial Transactions Govern Business Cycles

Victor Olkhov
TVEL, Moscow, Russia
Problem/Relevance - This paper presents new description of the business cycles that for decades remain as relevant and important economic problem.
Research Objective/Questions - We propose that econometrics can provide sufficient data for assessments of risk ratings for almost all economic agents. We use risk ratings as coordinates of agents and show that the business cycles are consequences of collective change of risk coordinates of agents and their financial variables.
Methodology - We aggregate similar financial variables of agents and define macro variables as functions on economic space. Economic and financial transactions between agents are the only tools that change their extensive variables. We aggregate similar transactions between agents with risk coordinates x and y and define macro transactions as functions of x and y. We derive economic equations that describe evolution of macro transactions and hence describe evolution of macro variables.
Major Findings - As example we study simple model that describes interactions between Credits transactions from Creditors at x to Borrowers at y and Loan-Repayment transactions that describe refunds from Borrowers at y to Creditors at x. We show that collective motions of Creditors and Borrowers from safer to risky area and back on economic space induce frequencies of macroeconomic Credit cycles.
Implications – Our model can improve forecasting of the business cycles and help increase economic sustainability and financial policy-making. That requires development of risk ratings methodologies and corporate accounting procedures that should correspond each other to enable risk assessments of economic agents.
Keywords: business cycle, economic transactions, risk assessment, economic space

Is Human Capital the Sixth Factor? Evidence from US Data

1,2 Pondicherry University, India
Problem/Relevance: Measuring the risk of an asset and the economic forces driving the price of the risk is a challenging task that preoccupied the asset pricing literature for decades. However, there exists no consensus on the integrated asset pricing framework among the financial economists in the contemporaneous asset pricing literature. Thus, we consider and study this research problem that has greater relevance in pricing the risks of an asset. In this backdrop, we develop an integrated equilibrium asset pricing model in an intertemporal (ICAPM) framework.
Research Objective/Questions:
Broadly we have two research objectives. First, we examine the joint dynamics of the human capital component and common factors in approximating the variation in asset return predictability. Second, we test whether the human capital component is the unaccounted and the sixth pricing factor of FF five-factor asset pricing model. Additionally, we assess the economic and statistical significance of the equilibrium six-factor asset pricing model.
Methodology: The human capital component, market portfolio, size, value, profitability, and investment are the pricing factors of the equilibrium six-factor asset pricing model. We use Fama-French (FF) portfolios of 2 3, 5 5, 10 10 sorts, 2 4 4 sorts, and the Industry portfolios to examine the equilibrium six-factor asset pricing model. The Generalized method of moments (GMM) estimation is used to estimate the parameters of variant asset pricing models and Gibbons-Ross-Shanken test is employed to evaluate the performance of the variant asset pricing frameworks.
Major Findings: Our approaches led to three conclusions. First, the GMM estimation result infers that the human capital component of the six-factor asset pricing model significantly priced the variation in excess return on FF portfolios of variant sorts and the Industry portfolios. Further, the sensitivity to human capital component priced separately in the presence of the market portfolios and the common factors. Second, the six-factor asset pricing model outperforms the CAPM, FF three-factor model, and FF five-factor model, which indicates that the human capital component is a significant pricing factor in asset return predictability. Third, we argue that the human capital component is the unaccounted asset pricing factor and equally the sixth-factor of the FF five-factor asset pricing model. The additional robustness test result confirms that the parameter estimation of the six-factor asset pricing model is robust to the alternative definitions of the human capital component.
The empirical results and findings equally pose the more significant effects for the decision-making process of the rational investor, institutional managers, portfolio managers, and fund managers in formulating the better investment strategies, which can help in diversifying the aggregate risks.
Keywords: Asset pricing; FF five-factor model; human capital; return predictability; six-factor asset pricing model; sixth factor.


Francisca M. Beer
1, Frank Lin2
1,2 California State University, San Bernardino, USA

Problem/Relevance: This study is motivated by psychological evidence of a strong connection between sporting event outcomes and mood. To evaluate this connection, we analyze the Indian stock market reaction to sudden changes in investors’ mood captured by India’s cricket results. By focusing on a rarely studied mood variable and a very infrequently studied stock exchange, this study adds to our understanding of the association between sporting event outcomes and mood.
Research Objective/Questions: In this study, we investigate the impact of cricket wins and losses on the Bombay Stock Exchange. We hypothesize that cricket wins or losses will drive investors’ mood substantially and unambiguously so that the game outcomes will be powerful enough to impact asset prices. We also evaluate the hypothesis that losses are psychologically more powerful than wins.
Methodology: We analyze the daily data from the Bombay Stock Exchange using the methodology of Edmonds et al. (2007). This methodology has the advantages of capturing the Bombay Stock Exchange stock returns time-varying volatility through a GARCH model.
Major Fundings: Our findings show that cricket wins and losses do not impact the Bombay Stock Exchange. On the exchange, stock prices reflect relevant information. Our results are thus consistent with the Efficient Market Hypothesis.
Implication(s): Our results imply that on the Bombay Stock Exchange, cricket wins and losses cannot be reliably used by investors and portfolio managers to achieve returns in excess of the average market returns on a risk-adjusted basis.
Keywords: Sentiment, Sports Sentiment, Investor mood, ARCH, GARCH, Bombay Stock Exchange

Digital Accounting - Special Issue 2019

Minna Martikainen1 and Othmar M Lehner2 (Editors)

1 Hanken School of Economics, Helsinki
2 University of Applied Sciences Upper Austria and Hanken School of Economics

The Whatness of Digital Accounting: Status Quo and Ways to Move Forward
Othmar Lehner1, Susanne Leitner-Hanetseder2, Christoph Eisl2

1 University of Applied Sciences Upper Austria and
Hanken School of Economics, Helsinki, Finland

2 University of Applied Sciences Upper Austria

Digital Accounting: Opportunities, Threats and the Human Factor

Shawnie Kruskopf, Charlotta Lobbas, Hanna Meinander, Kira Söderling1,
Minna Martikainen
1 and Othmar M Lehner2 (Editors)

1 Hanken School of Economics, Helsinki
2 University of Applied Sciences Upper Austria and Hanken School of Economics

Abstract: This paper gives an overview of the current and future technologies impacting accounting and auditing fields. The aim is to present the technological disruptions shaping these fields and also look at how they might influence future jobs and required skills. Starting with a historical background check on how Industry 4.0 emerged, we survey four main areas of the topic: 1) current developments supported with real-life cases, 2) a literature review of on-going research, 3) possible future job descriptions, and 4) required skills and how to acquire them.
Keywords: Digitalisation; Accounting; Auditing; Industry 4.0; Skills

Big Data, Cloud Computing and Data Science Applications in Finance and Accounting

Jennifer Huttunen, Jaana Jauhiainen, Laura Lehti and Annina Nylund
Minna Martikainen
1 and Othmar M Lehner2 (Editors)

1 Hanken School of Economics, Helsinki
2 University of Applied Sciences Upper Austria and Hanken School of Economics, Helsinki

Abstract: The aim of this paper is to get acquainted with big data and how advanced analytical tools like data science and machine learning are helping the financial sector obtain greater insights about their businesses. Further applications also include acquiring a deeper understanding about ways to provide customers the next level experience in banking and/or investing. We have briefly touched on cloud computing as the platform to support the utilization of some of these technologies. The financial sector, including the accounting industry, will experience disruption albeit at an unknown pace. Despite the benefits derived from exploiting these emerging technologies, a slow uptake is still observed. The authors believe that a more receptive attitude towards innovative technologies could pave the way to more application in the field. Consequently, standards and regulations will evolve to keep up with these changes.
Keywords: Big Data; Data Science; Machine Learning; Analytics; Accounting; Finance

Current State and Challenges in the Implementation of Robotic Process Automation and Artificial Intelligence in Accounting and Auditing

Max Gotthardt, Dan Koivulaakso, Okyanus Paksoy, Cornelius Saramo1
Minna Martikainen
1 and Othmar M Lehner2 (Editors)

1 Hanken School of Economics, Helsinki
2 University of Applied Sciences Upper Austria and Hanken School of Economics, Helsinki

Abstact: Technology development has grown rapidly in the last decades and gained importance for accounting and auditing through its identified potentials. Particularly the automation of judgment systems and systems that require human intervention, are deemed to be more relevant to confront a transformation through Robotic Process Automation (RPA). During the continuous development, the augmentation of such systems through Artificial Intelligence (AI) presents a greenfield project with high expectations. However theoretical frameworks have not yet been elaborative and sufficient to capture how such deployments can be conducted. Addressing this research gap, this study presents a summarized overview of the transforming RPA ecosystem and indicates what challenges are critical to being confronted for a successful implementation of such systems in accounting and auditing.
Keywords: Robotic Process Automation; Artificial Intelligence; Financial Technologies; Accounting; Auditing; Technology Implementation; Black Box Solutions

Blockchain in the Fields of Finance and Accounting: A Disruptive Technology or an Overhyped Phenomenon?

Aino Nordgren, Ellen Weckström1
Minna Martikainen
1 and Othmar M Lehner2 (Editors)

1 Hanken School of Economics, Helsinki
2 University of Applied Sciences Upper Austria and Hanken School of Economics, Helsinki

Abstract: Blockchain technology became widely known with the emergence of Bitcoin in 2009 and has since gotten a lot of hype as a technology to disrupt the field of financial services. Blockchain was even suggested as a possible solution to UK’s border issues after Brexit. While many praise blockchain’s promise to enhance the speed and security of transactions, there are some who question the real-world applicability of blockchain. Is blockchain the internet of our time, a disruptive technology or just an overhyped phenomenon?
This paper looks at blockchain technology, its applications in the fields of finance and accounting, and the disruptive power of blockchain in these fields. We provide an overview of the criticism and obstacles that need to be dealt with for blockchain to realize its potential.
Keywords: Blockchain, Digital finance, Digital accounting, Digital Auditing, Smart contracts

FinTechs: Their Value Promises and Disruptive Potential

Sara Laahanen, Eemil Yrjänä1
Minna Martikainen
1 and Othmar M Lehner2 (Editors)

1 Hanken School of Economics, Helsinki
2 University of Applied Sciences Upper Austria and Hanken School of Economics, Helsinki

Abstract: In the last few years technological advancements have occurred at a rapid pace. The financial service sector is experiencing fundamental changes due to technological advancements and digitization. Traditional financial institutions are now facing competition by fintech companies. Fintech companies are filling the gaps left by traditional financial institutions, applying technology and making financial services more efficient, intelligent and customer-oriented. Fintech solutions are also enabling financial inclusion. However, there is ongoing concern regarding regulation and trust of fintech companies.
In this paper, we will focus on how fintech have and will change the financial service sector. We will provide a better knowledge of the current and future developments of fintech and also consider some critical voices from society.
Keywords: Financial technology, Fintech, Financial industry

RegTech - A Necessary Tool to Keep up with Compliance and Regulatory Changes?

Ellinor Johansson, Konsta Sutinen, Julius Lassila, Valter Lang1
Minna Martikainen
1 and Othmar M Lehner2 (Editors)

1 Hanken School of Economics, Helsinki
2 University of Applied Sciences Upper Austria and Hanken School of Economics, Helsinki

Abstract: The discussion about the need for regulation got fuelled after the latest 2008 Global Financial Crisis, with many demanding stricter policies to avoid history from repeating itself. These voices have been partly answered, as a plethora of new policies, regulations and standards has been implemented since then. Drafted under good intentions, these new rules have also shown to have detrimental consequences. Exclusion of potential customers and high barriers of entry are only the side-effects of the rapidly rising costs of compliance that the large set of new regulations have brought upon businesses. RegTechs, a new category of innovations that were before classified as part of FinTech, are tools of the future for complying with regulations. This article describes the past, current and future developments of RegTechs, present some real-life cases of current RegTech companies, and discusses their place in a world of ever-changing rules and policies.  
Keywords: RegTech, FinTech, regulation, compliance, Global Financial Crisis, internal auditing, accounting, tax regulation, GDPR, reporting

Prevention and Detection for Risk and Fraud in the Digital Age – The Current Situation 

Hanna Donning, Mathias Eriksson1
Minna Martikainen
1 and Othmar M Lehner2 (Editors)

1 Hanken School of Economics, Helsinki
2 University of Applied Sciences Upper Austria and Hanken School of Economics, Helsinki

Abstract: “Fraud”, “corporate crime” and “white collar crime” are all terms used when referring to economical- and operational crimes, where fraudulent activities has occurred. Illegal acts such as asset misappropriation, business misconduct fraud, money laundering, cybercrime, tax fraud and accounting fraud are major concern, and where an increased threat has been identified.
This paper explores the possibilities new technology used in fraud detection and prevention mechanisms could provide. Furthermore, we connect the new technology mechanisms with the aspect of organizational culture, that has been proved significant in fraud risk. The contribution is twofold. First, we provide an assessment of modern approaches for fraud detection and prevention, second the insights given by the case study and previous research add encouragement and potential directions for both future research and business practice implications.  
Keywords: Fraud; Internal fraud; Advanced technology; Organization culture; Case Study 

Cybercrime in a Business World: Behavioral Perspectives

Böckelman Petter, Björkman Henrik1
Minna Martikainen
1 and Othmar M Lehner2 (Editors)

1 Hanken School of Economics, Helsinki
2 University of Applied Sciences Upper Austria and Hanken School of Economics, Helsinki

Abstract: As we are living in a fast-growing digital age it is crucial to keep in mind risks related to digitalization. The current digital work environment enables cybercrime and the practice of cybercrime has become more and more common. Because of the fast digitalization of our society many people miss out on important parts such as cyber security and only focus on development. This means that social behaviour is a big issue when it comes to cybercrime and cyber security.
This work explores cybercrime in a business world with a focus on social behaviour. It explains how big an impact social behaviour has on cybercrime and it also explains how you can protect yourself of becoming a victim of cybercrime.
Keywords: Cybercrime; Social behaviour; cyber security; Social engineering